The US Treasury has finally released its long-awaited guidance on lucrative tax credits for hydrogen producers, ending a two-year limbo period for startups in the industry. The announcement brings much-needed clarity and certainty, paving the way for the widespread adoption of hydrogen as a clean energy alternative to fossil fuels.

The rules, outlined under Section 45V of the Inflation Reduction Act, aim to ensure that new hydrogen production doesn't result in additional greenhouse gas emissions on the grid. To achieve this, the Treasury Department requires producers to track the emissions generated by each kilogram of hydrogen throughout its lifecycle. This means that producers will need to account for emissions from various sources, including methane leaks from natural gas pipelines.

The hydrogen industry is complex, with various production methods yielding different environmental impacts. Hydrogen can be produced through electrolyzers, which use electricity to split water molecules into hydrogen and oxygen, or through steam reformation, which uses steam and heat to break methane molecules, producing hydrogen and carbon dioxide. The resulting rules are designed to navigate this complexity, ensuring that tax credits are awarded to producers that minimize greenhouse gas emissions.

Under the revised guidance, hydrogen producers will be required to buy renewable or clean power from their region. By 2030, they will also need to demonstrate that power was used to make hydrogen within the hour. The rules offer larger tax credits to producers that generate fewer greenhouse gases throughout their production lifecycle, with credits of up to $3 per kilogram. This could make green hydrogen, which costs around $4.50 to $12 per kilogram, competitive with fossil-derived hydrogen in some regions.

The revised rules also provide some relief to existing nuclear and fossil fuel power plants. Previously, hydrogen producers would have been required to source power from new nuclear plants to qualify. Now, existing nuclear plants can supply up to 200 megawatt-hours of electricity. Additionally, certain fossil fuel power plants that have recently installed carbon capture equipment will now qualify.

While the rules are welcome, industry stakeholders acknowledge that they are not perfect. Beth Deane, chief legal officer at Electric Hydrogen, expressed her company's desire for more flexibility around where producers are allowed to buy electricity from and how much additional clean or renewable power they're required to procure. However, Deane emphasized that the industry's primary concern is certainty, urging the incoming administration to let the rule stand and allow for potential tweaks in the future.

The Treasury's announcement is expected to have a significant impact on the growth of the hydrogen industry, which has been waiting for official guidance to move forward. With clarity on tax credits, startups and established companies alike can now invest in hydrogen production, driving innovation and adoption in heavy industry and long-haul transportation.

As the world continues to transition towards a low-carbon economy, the development of a robust hydrogen industry will play a critical role in reducing greenhouse gas emissions. The US Treasury's final rules for hydrogen tax credits mark a significant milestone in this journey, providing a clear path forward for companies and policymakers alike.